(Washington) The pause in interest rate hikes marked by the Fed last week may only be temporary: the institution’s chairman, Jerome Powell, again warned on Wednesday that one or more additional hikes were to be expected, at a slower pace than before though.
“Given how far we’ve come, it may make sense to raise rates, but to do so at a more moderate pace,” the chairman of the US Federal Reserve said during his hearing before a committee of the US House of Representatives. .
Because, if inflation has slowed since its peak a year ago, it remains far too high.
“Nearly everyone” on the Federal Reserve’s Monetary Policy Committee “expects it to be appropriate to raise interest rates somewhat further by the end of the year,” he said. he still indicated. With “a large majority” in favor of two increases.
On June 14, the Fed marked a pause in its key rate hikes, for the first time since March 2022, and after 10 hikes, by 5 points in total. Rates are now in the 5-5.25% range.
This should make it possible to “evaluate the information and its implications for monetary policy,” Mr. Powell stressed.
The next Fed meeting will be July 25-26.
“We are progressing”
The rate hikes, which lead commercial banks to increase the cost of their loans to households and companies, aim to slow down economic activity, in order to ease the pressure on prices and slow down inflation.
This remains “well above our long-term objective of 2%”, underlined the President of the Fed. “We still have a long way to go, but we are making progress,” he then nuanced.
Wages have risen sharply in the United States as the labor shortage pushes employers to offer better terms to attract applicants and retain staff. But “inflation is so high that it is swallowing up wage increases,” the Fed Chairman further lamented.
However, he warned, “reducing inflation will likely require a period of below-trend growth,” Powell further cautioned.
While Jerome Powell was heard by elected officials from the House of Representatives, senators conducted the hearing of the three people chosen by President Joe Biden for the posts of vice-president and governors of the Fed.
The three economists were notably questioned on the risks associated with too much concentration in a particularly turbulent banking sector since the fall of Silicon Valley Bank in early March.
“We appreciate the fact that there is a diversity of banks in the economy and we would not like too much consolidation”, declared Philip Jefferson, one of the governors of the Fed, chosen to become number two.
Banking concentration, a “risk”
The American banking landscape is in fact made up, alongside the large establishments with names known internationally, of a multitude of small local or regional banks, the local banks.
“I think the diversity of the banking sector is essential, the competition in the banking sector is essential,” noted Adriana Kugler, currently one of the officials at the World Bank, who could become the first governor of origin Fed Hispanic.
This competition in the banking sector is, according to her, “one of the factors that allow low-income and modest-income households to have access to credit. […] I fear excessive consolidation”.
Lisa Cook, who has been on the Board of Governors for a year and has been appointed for a full term, even believes that, on the regulatory side, retail banks “should not be burdened with the same requirements as the big banks and that ‘they should be able to thrive in these communities without the burden of significant regulation’.
“Banking concentration is a risk to financial stability,” she warned.
These three appointments, of African-American and Hispanic economists, should make it possible to bring more diversity to the Fed. They must now be validated by the Senate.